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Analysis/Comment Last Updated: Aug 13, 2012 - 7:39 AM

Could the Irish public sector benchmarking fiasco provide a case for the DPP?
By Michael Hennigan, Founder and Editor of Finfacts
Mar 21, 2010 - 3:24 PM

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The IMF said in a report last June, that following the sharp deceleration of Irish growth and revenues since 2007, the fiscal deficit threatened to reach 15% of GDP, which compares with Ireland’s record 17½% of GDP in 1978 - - the year following the 1977 general election, that resulted in the first of the two periods of monumental economic mismanagement in the history of the Irish State. The second began in 1997.

While Ministers are happy to see bankers take the heat for bringing ruin to the economy, through use of the legal process, it would be bizarre if for the second time in a generation, political leaders will not face judgment day on monumental mismanagement. However, could the Irish public sector benchmarking fiasco provide a case for the DPP (Director of Public Prosecutions)?

In 1978, a public spending fuelled boom in Ireland resulted in a budget deficit of 17.6 per cent of GDP (gross domestic product) - - a record for developed countries according to the International Monetary Fund (IMF), for the period 1970-2008. Between 1977 and 1982, the combination of tax cuts and huge spending increases (in the single year of 1979, the public service pay bill was increased by 34 per cent), resulted in a trebling of the National Debt. The debt has more than doubled since 2007 and we are on course for a treble again.

Political leaders could plead good intentions, incompetence or over-optimism on many issues but the issue of benchmarking had a direct cash cost and the public body that recommended an average special increase of 8.9% for ministers, TDs, other public staff and all public service pensioners, "strongly" recommended that 75 per cent of the payment be withheld until agreement was reached on how "real outputs" would be delivered. It also recommended that an "appropriate validation process" be established to ensure that agreements on issues such as adaptability, change, flexibility and modernisation were implemented in accordance with their terms.

Eight years ago, the cost was estimated at €1 billion annually and in recent years rose to about €2 billion. So the money was paid and discussion continues with trade unions on how talks could begin on delivering the "real outputs," a decade late.

The unions have launched a campaign of public service disruption to reverse the public pay cuts in last December's Budget but apart from the original basis of linking the payment to reform, the alternative argument that payment was made to close a claimed gap between public and private sector pay, has been shown to have no validity.

The Public Service Benchmarking Body (PSBB) was established in July 2000 to undertake a fundamental examination of the pay of public service employees vis-à-vis the private sector. It recommended what it termed "a range of pay increases, linked to agreement on relevant modernisation and change."

The benchmarking  report [pdf] was published in June 2002 and while the services of nine "major" Irish and international consultancies were used to advise and carry out research, the Minister for Finance, Charlie Mc McCreevy, did not allow publication of data used.

The Minister said on publication that: "An initial assessment suggests that full implementation of the recommendations in the report would give rise to a full year cost of over €1 billion in current terms. The budgetary implications of this would be significant and are a factor to which regard will have to be had in any discussions with the public service unions on the implementation of the report."

In November 2003, McCreevy said in a speech: "while the Government is committed to honouring benchmarking, I would like to stress that the payments are dependent on compliance with the terms of the agreement. If the conditions are not met in any sector, grade or organisation then the payments will not be made in that area."

It was not to be and the trade union leaders have been as disingenuous as the politicians.

Public service premia (%) across weekly earnings distribution for all Employees - - including size as an explanatory variable (Weighted). Source: Central Statistics Office

The tens of thousands of unemployed, living in a silent shadow land, are their victims.

In 2004, the Economic and Social Research Institute (ESRI) published a paper by economists at NUI Maynooth, which stated: "A curious feature of the PSBB’s report is that it furnished no specific justification for any of the pay increases it proposed. Instead, it provided a generalised rationale for its corpus of recommendations that echoed its terms of reference and cited a number of broad considerations. At no stage therefore did the PSBB indicate that its pay recommendations, either in general or in particular, arose because of a pay gap between the public and private sectors and the perceived need to bridge such a gap."

Neither had published Central Statistics data supported the claims of a surge in private sector pay, with the exception of construction.

Nevertheless, trade unions claimed that it was an alleged pay gap rather than reform/modernisation was the reason for the PSBB pay proposal.

The ESRI paper cites for example, Peter McLoone, General Secretary of the IMPACT trade union, who responded to the PSBB’s report by saying: “The outcome has vindicated IMPACT’s view that public service pay fell behind during the economic boom,” while the Executive Committee of another public service union, the Association of Higher Civil and Public Servants, responded as follows: “The independent Benchmarking Body has clearly established that public sector remuneration is behind, and in some cases substantially behind, equivalent private sector remuneration and the fair rate for the job.”

Also in the ESRI paper, the NUI Maynooth economists, including Jim O'Leary who had resigned from the PSBB before publication of its report, provided the results of research on public-private sector pay differentials in Ireland during the 1994-2001 period and a comparison with international experience.

In the year 2001 the public pay premium was 46 per cent when measured in terms of average gross monthly earnings.

Using ESRI data, when differences in productivity-related personal attributes and job characteristics were controlled for, the premium was 13 per cent and had not significantly changed from 1994.

The 13 per cent premium for 2001, compared with corresponding estimates in the range 4-6 per cent for France, Italy and the UK, using 1998 data (the Irish estimate for 1998 was also around 13 per cent).

In a paper before the December Budget,  the ESRI reported that the public sector pay differential, excluding pensions, jumped from 14 per cent to 26 per cent for comparable private jobs in respect of the period 2003-2006.

The attitude of "don't confuse us with the facts" is often common in Irish public discourse.

In The Irish Times last October, journalist Kathy Sheridan recounts how former Taoiseach Bertie Ahern produced a Central Statistics Office (CSO) study, which he claimed shows that national pay agreements between 1997 and 2009 left the private sector ahead by 10 per cent. "So the 9 per cent from benchmarking simply bridged the gap. That’s all. 'So I don’t know what they’re talking about,' he says, mystified."

Also in October 2009, the CSO published an analysis [pdf] of the 2007 National Employment Survey which showed that the public sector received a 19.1 per cent earnings premium over those working in the private sector in comparable jobs. The earnings premium for all males working in the public sector was on average 14.8 per cent with a premium of 22.9 per cent for all females.

This issue is a lot more important than a pub stool debate. It is about the reckless use of public funds and the inability of the Government today to make a case that it shouldn't have paid for what it didn't get.

The Budget public sector pay cuts were only a partial clawback of the billions of euros of payments that shouldn't have been made.

The PSBB said its conclusions on withholding 75 per cent of the payment until "real outputs" were determined and a system for "validation" had been put in place, were to be taken as"integral parts of the recommendations on pay."

Nevertheless, it was pay and be damned.

However, if bankers are to be held to account for alleged accounting manipulations, why should political leaders get away with the irresponsible use of public funds?

The Government misused public funds contrary to the recommendations of a public body and the public statements of the Minister for Finance.

Senator Joe O'Toole, the general secretary of the Irish National Teachers' Organisation, saw through the jellyfish politicians and had compared benchmarking to an ATM machine. He had added in April 2001: "Somebody asked me, `well, what happens if there is no money in the ATM machine?' Well, if there is no money in the ATM machine, then it is time to take out a sledgehammer, because there is an absolute certainty that we are determined to see this through and nothing is more certain than what we have is an absolute united commitment to delivery on this money."

It was certainly a grand heist but shouldn't we ask who was responsible for robbing the bank?

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